 The hodl tax is another reason to self-custody your Bitcoin. I wasn't aware of this, so I brought in everyone's favorite crypto CPA, She-Han Chandrasekhar, out to the show to explain. So She-Han, welcome back. Yeah, great to be here again. Poor again to that. Can you just give us a quick refresher so everybody knows? First of all, I'm going to ask you this. What is a taxable event? What's it is between short and long-term capital gains? And then also there's one called a net investment income tax. So just real quick, She-Han, could you just kind of go through what is an actual taxable event in crypto so people know? Yeah, so in general for crypto, there are five taxable events. By the way, this has nothing to do with ETF. This is just general crypto. So number one, just cashing out pretty self-explanatory. You had Bitcoin, you sold it for profit for cash. You had to pay taxes. Number two, when you exchange one coin or NFT with another coin or NFT, the IRS does not care if you receive cash or not. You still had to pay taxes. If that first coin has appreciated in value at the time you're exchanging it to the next coin. OK. Number three, when you spend cryptocurrency or even NFTs to buy goods and services, that triggers a taxable event. Number four is when you earn cryptocurrencies. You can earn cryptocurrencies through mining, staking, employment income, et cetera. Those are taxable. The last one is crypto specific events. Like sometimes you get new coins as a result of an airdrop or a hard fork. And those coins are taxed at the time you receive them based on the fair market value. So those are the five taxable events. Gotcha. OK. So that is just the basics of basics. Let's talk about short and long term capital gains because you put this up. And of course, people look at this and are like, what is this? Do I have to pay this much taxes? So just real quick difference between short and long term and what are the brackets here in the United States? Now, of course, we can't cover all the different countries that are out there, but this is a general term and this is just for the US. Yeah. So at a high level, what determines whether something is short term or long term is the holding period in simple terms. That means how much you're keeping an ETF share or a coin or stock. So if you were to buy something and sell after holding it for less than 12 months, the resulting profit results in what's called short term capital gains. And those gains are subject to these tax rates based on your filing status and the income levels. So let's say, for example, you made $50,000 worth of short term capital gains. So you got to kind of follow the chart. So 50,000 kind of in that third row. So that 50,000 is going to be subject to assuming you're a single file and that's going to be subject to a 22% tax rate. So that's kind of how it works. Gotcha. So like from like from if I make 50,000, not a bad. So this is a progressive tax, right? So from zero to 11,000, I'm paying X amount. Correct. 11,000, 40,000, paying 12 and 44 to the 22. It's not like when I get to 44,000, I'm immediately paying 22%. So I know some people sometimes have that question, but we have a progressive tax. Now, let's so just to clarify. So the 22% the rate is going to be applied to whatever the difference between 50,000 minus 44,725. Exactly. Gotcha. Gotcha. Good clarification. So that would be the short term. Let's talk about long term. Yeah. So the long term capital gains apply when you sell something for profit after holding it for more than 12 months. So there are three tax rates for these profits to be subject to 0%, 15% and 20%. By the way, a lot of people are not aware of this 0% tax rate. And it's something that you can use if you kind of meet the complications. Let's do like another example here. So let's say $50,000, like in our previous example, in this case, it's a long term capital gain. In this scenario, that entire 50,000 is going to be subject to a flat 15% tax rate because these rates are kind of a little bit different compared to the previous shot. And by the way, so in order for you to get the 0% rate, like your entire taxable income for the year has to be less than like $44,625 for a single person. So let's say, for example, you had one year, all you had was like, you know, $40,000 worth of long term Bitcoin, stock or ETF gains. That's going to be subject to 0% tax rates, meaning you don't have to pay any taxes. Well, thank God for small wonders, only $40,000 to live on. Yeah. Yeah, only $40,000 to live on. But if you really think about it, that's probably equivalent to a $60,000, $65,000 W2 income, right? Because because you're not paying taxes. Like if you like if you have like a $62,000, $65,000 and W2 job, your actual cash inflow is probably going to be somewhere around 40 to 45,000. Like that's actually what hitting your bank account. So that is very true. Yeah, I could I could be OK, you know, living around $3,700 to $4,000 a month, just going from there. I mean, of course, it'd be $48,000, but yeah, let's just say $35,000, I can do that. So there's that piece. Now let's talk about the NIT, the net investment income tax. What exactly is this year? Yeah, so so we spoke about short term capital gains and long term capital gains. And in any given year, if you're total income, but as a matter of fact, it's called the modified gross adjusted income exceeds any of these shows, you had to pay an additional 3.8 percent tax on top of your capital gain tax. So going with our example before, so you had three thousand dollars worth of, you know, could be short term or long term. But for the entire year, you made like, you know, half a million dollars because you're high net with individuals and that half a million dollar could come from wages or business income or whatever. So in that case, that 50,000 is is subject to their short term or long term capital gain taxes we spoke about. Plus, this additional 3.8 percent tax. Ah, fun times. Good love taxes. So now that will leave us to our last point, which is one that I had a question on, which was these fund expenses, because this is all from the Bitcoin ETF and the different institutions that are offering those services, the Black Rocks and the Fidelity's and things like that. There is a fund expense. So could you kind of walk us through this because that's for the people who right now are going, OK, I'm just going to do a Bitcoin ETF, but I haven't sold anything. So how does this work for fund expenses? Yeah, so this is somewhat unique thing to spot ETFs because these ETFs are structured as grant or trust. So obviously, like sponsors like, you know, ARC and Fidelity, they need to have money to kind of run the fund, right? They had to pay the salaries and etc. Right. In order to do that, they have to dispose of like bitcoins throughout the year to kind of come up with the cash inflow. So whenever they do that, that results in a capital gain or loss event for the shareholders, because whenever you spend something like Bitcoin, there's a difference between how much you paid for it and the market value. So if there's a profit, there's a gain at the fund level. And as an ETF shareholder, you had to report that gain based on your pro-rata share of the fund that you own. But the trick here is that you had to report that gain, but the fund is not giving you the cash. They're not distributing that. Yeah. So I like to kind of call this like a hodling tax because generally speaking, like, you know, hodling, hodling is completely tax-free. Like if you're hodling, you know, Bitcoin, even like any stock, right? But if you're hodling a spot Bitcoin ETF fund, you had to keep you had to pay this tax. That's kind of something for you guys to know about. That's crazy. That's crazy. So everybody, so if you're new to the game and then you're like, you're seeing yourself that that a, you know, an ETF could be very safe. Of course, you offload some of those restrictions and the things that you have to do as far as what you're holding on to it. That is true. But just like Xi'an said, and I've never heard of this until right now, there is a hodling tax. That is probably what I will use in the description in the title for this actual video. So Xi'an, that's interesting stuff. And yet another reason why I think people should learn how to self custody and cold storage devices. But that's another video. So Xi'an, before we take off any last words of wisdom for the people out there getting into the space right now. I think the spot Bitcoin ETF, like there are like, you know, legit use cases for using something like that, especially if you want to buy if you don't have exposure to crypto in a 401k set by array or need to have an account, the spot Bitcoin ETF is a really good way to go about that. But if you're kind of want to kind of hold Bitcoin for the long run, the cheapest way for you to do is self custody, assuming you don't lose any seed prices or stuff like that, or you don't compromise your seed price to a hacker. This is very true. There's always the pros and the cons. So Xi'an, thank you so much. All right, everybody. So look, if you like today's video, give it a thumbs up, consider subscribing. If you want to follow Xi'an, there's information below in the description. That's it for today. So everybody, thanks so much for stopping by. Hope this helped and we'll see you in the next one. Thanks, guys.